To do well in investing, we can start with a simple premise: understanding the business behind a stock’s ticker symbol.
Today, we will look at SIA Engineering Company Ltd (SGX: S59), a company that specialises in aircraft maintenance, repair, and overhaul (MRO) services to over 80 international airlines around the world. It is also a subsidiary of Singapore Airlines Ltd. (SGX: C6L).
In this article, we will try to understand one aspect of the company –how does it make its cash. To do that, we can start with the table below:
Source: SIA Engineering Annual Report
SIA Engineering has two broad categories from where the company earns its revenue, namely its fully owned businesses (more explanation below) and partnerships, represented by its joint ventures and associates.
Fully Owned Business: Airframe and line maintenance
The airframe and line maintenance segment provides airframe maintenance, line maintenance, and fleet management programme.
Airframe maintenance services include scheduled routine maintenance and overhaul, specialized and non-routine maintenance, modification and refurbishment programs while line maintenance provides aircraft certification and technical ground handling services such as push-back and towing, and the provision of aircraft ground support equipment and rectification work.
This key segment accounted for 97% of SIA Engineering’s revenue and 37% of its profit before tax for the fiscal 2017/2018.
Fully Owned Business: Engine and component
The engine and component segment covers component overhaul along with engine repair and overhaul services. This segment accounted for around 3% of SIA Engineering’s fiscal 2017 / 2018 revenue, and recorded a loss in the same year.
Partnerships (joint ventures and associates)
These are the various relationships that SIA Engineering has formed around the world. The main services provided here are related to the engine and component business.
From the above, we can see that this part of the business contributed about 53% of SIA Engineering’s fiscal 2017/2018 profit before tax. In other words, the company derived more income from its partnerships than its own, fully owned businesses.
In sum, we can see that there are separate businesses that operate under the SIA engineering Umbrella. By breaking down the revenue sources of the company, investors can have a better overview of the whole company. Understanding SIA Engineering’s business is the first step for investors to form a better judgement on the long term prospects of the company.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.